Pensions accrued during the marriage are classed as ‘matrimonial assets’ and to the surprise of many, pensions are usually the single biggest asset for divorcing couples, making up an astounding 42% of total household wealth, compared to the share of wealth in property which is around 36%. Despite these figures, a survey of Which? members conducted in November 2021 showed that only 15% of divorcing couples include pensions in their financial settlement.
Splitting pensions can be a daunting task, however overlooking pensions can be a huge mistake and people frequently underestimate just how valuable pensions can be. Failing to consider pensions could mean you are unlikely to get a fair outcome, especially if you consider the unequal distribution of pension wealth among married men and women, with the average married woman aged between 65-69 having just £28,000 in pension wealth, compared to the average man who has almost 10 times that amount.
During financial proceedings within the remit of divorce, a judge has the power to share out all your income, property and savings in a way which meets the needs of your children and each spouse, and pensions are added into the mix to balance the wealth between the parties equally.
There are three main ways that a court can order that a pension be shared, they are: offsetting, pension sharing and pension attachment orders.
Offsetting is usually the main way of resolving unequal distribution of wealth which involves one party retaining the whole of their pension and compensating the other party with other assets from the matrimonial pot. This is essentially a trade-off, for example, you may get to keep more of a share of the family home or all of it if your spouse retains their entire pension fund. This is usually the case when the matrimonial home and pension are the two main assets in the pot.
Pension sharing is another way which allows the judge to make an order, requiring providers of a pension fund to transfer a percentage of the transfer value to whichever spouse is to benefit from the order.
Another way is a pension attachment order, which states that a percentage of your pension that you receive on a weekly or monthly basis, is paid to your ex-spouse, or a percentage of theirs is paid to you.
It is worth considering pensions to ensure financial stability in the years to come after a divorce has finalised, but thought must be given to the costs associated with sharing pensions that may outweigh the benefit of the value being received.
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